## Facts

- Clamp-All Corporation, a manufacturer of steel couplings for plumbing fixtures, filed a Chapter 11 petition.
- Under 11 U.S.C. § 1121(b), Clamp-All had an initial 120-day period in which only the debtor could file a plan of reorganization, a period intended to let the debtor propose a plan without creditor interference.
- Clamp-All filed a proposed plan of reorganization and a proposed disclosure statement under 11 U.S.C. § 1125.
- Anthony Foresta and Caliber Consulting Corporation (Caliber), Foresta’s consulting firm, were Clamp-All’s largest creditors.
- Before the bankruptcy court approved any disclosure statement, Foresta and Caliber filed objections to Clamp-All’s plan and disclosure statement.
- Attached to those objections, Foresta and Caliber included their own proposed alternative plan and proposed disclosure statement.
- Foresta and Caliber mailed copies of their filing (including the alternative plan and disclosure statement) to the entire creditor body.
- The alternative plan stated that all creditors would be paid in full on the plan’s effective date, while Clamp-All’s plan contemplated that many unsecured creditors would be paid within a year after the effective date.
- Clamp-All sought relief on the ground that the mailing interfered with exclusivity and amounted to pre-approval solicitation, contrary to § 1125(b) and Fed. R. Bankr. P. 3017(a), which restrict distribution of unapproved disclosure materials to avoid misinformation.

## Issues

1. Whether Foresta and Caliber’s mass mailing of a competing, unapproved plan and disclosure statement to creditors before court approval constituted prohibited “solicitation” under 11 U.S.C. § 1125(b) and violated Fed. R. Bankr. P. 3017(a).
2. Whether circulating a competing plan to creditors during the debtor’s § 1121(b) exclusivity period improperly interfered with the debtor’s exclusive plan-filing rights.
3. If violations occurred, what remedies were appropriate, including equitable subordination and an award of attorney’s fees.

## Decision

- The court found that Foresta and Caliber’s distribution of their unapproved alternative plan and disclosure statement to all creditors, before approval of any disclosure statement, functioned as an effort to obtain creditor support and therefore constituted improper solicitation barred by § 1125(b).
- The court found that the mailing also violated Rule 3017(a)’s restrictions on transmitting unapproved disclosure statements to creditors.
- The court concluded that the conduct was inconsistent with the purpose of the debtor’s exclusivity period under § 1121(b) because it injected a competing plan into the creditor body during the window Congress set aside for the debtor to propose a plan without creditor interference.
- As a sanction for the improper conduct and its impact on the Chapter 11 process, the court subordinated Foresta’s and Caliber’s claims and awarded the debtor attorney’s fees associated with responding to the violations.

## Legal Principles

- “Solicitation” under 11 U.S.C. § 1125(b) is not limited to an explicit request for a ballot; communications that, in context, are designed to gain support for or opposition to a plan before creditors receive court-approved “adequate information” can qualify as prohibited solicitation.
- Section 1125(b) and Fed. R. Bankr. P. 3017(a) work together to control the flow of plan-related information to creditors until the court approves a disclosure statement, reducing the risk that creditors will act on unvetted or misleading materials.
- Section 1121(b)’s exclusivity period reflects a congressional policy choice to give the debtor a defined time to propose and negotiate a reorganization plan without creditor interference through competing plan activity aimed at the creditor body.
- Bankruptcy courts may impose remedial sanctions, including equitable subordination of claims and an award of attorney’s fees, when a creditor’s conduct disrupts the statutory plan and disclosure framework and harms the fairness of the reorganization process.

## Conclusion

In In re Clamp-All Corp., the bankruptcy court held that Foresta and Caliber’s pre-approval mailing of an alternative plan and disclosure statement to all creditors during the debtor’s exclusivity period was an improper attempt to influence creditor support, violating § 1125(b) and Rule 3017(a) and conflicting with the purpose of § 1121(b); the court responded by subordinating their claims and awarding the debtor attorney’s fees.


In re Clamp-All Corp., 233 B.R. 198 (1999)